Pecora Commission
Encyclopedia
The Pecora Investigation was an inquiry begun on March 4, 1932 by the United States Senate Committee on Banking and Currency to investigate the causes of the Wall Street Crash of 1929
. The name refers to the fourth and final chief counsel for the investigation, Ferdinand Pecora
.
Senate, under the Banking Committee's chairman, Senator Peter Norbeck
. Hearings began on April 11, 1932, but were criticized by Democratic Party
members and their supporters as being little more than an attempt by the Republicans to appease the growing demands of an angry American public suffering through the Great Depression
. Two chief counsels were fired for ineffectiveness, and a third resigned after the committee refused to give him broad subpoena
power. In January 1933, Ferdinand Pecora, an assistant district attorney
for New York County was hired to write the final report. Discovering that the investigation was incomplete, Pecora requested permission to hold an additional month of hearings. His exposé of the National City Bank (now Citibank
) made banner headlines and caused the bank's president to resign. Democrats had won the majority in the Senate, and the new President, Franklin D. Roosevelt
, urged the new Democratic chairman of the Banking Committee, Senator Duncan U. Fletcher
, to let Pecora continue the probe. So actively did Pecora pursue the investigation that his name became publicly identified with it, rather than the committee's chairman.
Following the 1929 Wall Street Crash, the U.S. economy had gone into a depression, and a large number of banks failed. The Pecora Investigation sought to uncover the causes of the financial collapse. As chief counsel, Ferdinand Pecora personally examined many high-profile witnesses, who included some of the nation's most influential bankers and stockbrokers. Among these witnesses were Richard Whitney
, president of the New York Stock Exchange
, investment bankers Otto H. Kahn
, Charles E. Mitchell
, Thomas W. Lamont
, and Albert H. Wiggin
, plus celebrated commodity
market speculators such as Arthur W. Cutten
. Given wide media coverage, the testimony of the powerful banker J.P. Morgan, Jr. caused a public outcry after he admitted under examination that he and many of his partners had not paid any income taxes in 1931 and 1932.
As reiterated by U.S. Securities and Exchange Commission (SEC) Chairman Arthur Levitt
during his 1995 testimony before the United States House of Representatives
, the Pecora Investigation uncovered a wide range of abusive practices on the part of banks and bank affiliates. These included a variety of conflicts of interest
, such as the underwriting
of unsound securities in order to pay off bad bank loans, as well as "pool operations" to support the price of bank stocks. The hearings galvanized broad public support for new banking and securities laws. As a result of the Pecora Commission's findings, the United States Congress passed the Glass–Steagall Banking Act of 1933 to separate commercial and investment banking, the Securities Act of 1933
to set penalties for filing false information about stock offerings, and the Securities Exchange Act of 1934
, which formed the SEC, to regulate the stock exchanges. Paul Krugman
believes that thanks to the legacy of the Pecora Commission's hearings and subsequent regulatory legislation, the American economy had a sound financial system for roughly half a century.
The Banking Committee's hearings ended on May 4, 1934, after which Pecora was appointed as one of the first commissioners of the SEC.
In 1939 Ferdinand Pecora published a memoir that recounted details of the investigations, Wall Street Under Oath. Pecora wrote: "Bitterly hostile was Wall Street to the enactment of the regulatory legislation." As to disclosure rules, he stated that "Had there been full disclosure of what was being done in furtherance of these schemes, they could not long have survived the fierce light of publicity and criticism. Legal chicanery and pitch darkness were the banker's stoutest allies."
Wall Street Crash of 1929
The Wall Street Crash of 1929 , also known as the Great Crash, and the Stock Market Crash of 1929, was the most devastating stock market crash in the history of the United States, taking into consideration the full extent and duration of its fallout...
. The name refers to the fourth and final chief counsel for the investigation, Ferdinand Pecora
Ferdinand Pecora
Ferdinand Pecora was an American lawyer and judge who became famous in the 1930s as Chief Counsel to the United States Senate Committee on Banking and Currency during its investigation of Wall Street banking and stock brokerage practices.-Early career:Ferdinand Pecora was born in Nicosia, Sicily,...
.
History
The investigation was launched by a majority-RepublicanRepublican Party (United States)
The Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...
Senate, under the Banking Committee's chairman, Senator Peter Norbeck
Peter Norbeck
Peter Norbeck served as the ninth Governor of South Dakota, and as a United States Senator. Norbeck was the first Governor of South Dakota to have been born within the borders of the state.-Biography:...
. Hearings began on April 11, 1932, but were criticized by Democratic Party
Democratic Party (United States)
The Democratic Party is one of two major contemporary political parties in the United States, along with the Republican Party. The party's socially liberal and progressive platform is largely considered center-left in the U.S. political spectrum. The party has the lengthiest record of continuous...
members and their supporters as being little more than an attempt by the Republicans to appease the growing demands of an angry American public suffering through the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
. Two chief counsels were fired for ineffectiveness, and a third resigned after the committee refused to give him broad subpoena
Subpoena
A subpoena is a writ by a government agency, most often a court, that has authority to compel testimony by a witness or production of evidence under a penalty for failure. There are two common types of subpoena:...
power. In January 1933, Ferdinand Pecora, an assistant district attorney
District attorney
In many jurisdictions in the United States, a District Attorney is an elected or appointed government official who represents the government in the prosecution of criminal offenses. The district attorney is the highest officeholder in the jurisdiction's legal department and supervises a staff of...
for New York County was hired to write the final report. Discovering that the investigation was incomplete, Pecora requested permission to hold an additional month of hearings. His exposé of the National City Bank (now Citibank
Citibank
Citibank, a major international bank, is the consumer banking arm of financial services giant Citigroup. Citibank was founded in 1812 as the City Bank of New York, later First National City Bank of New York...
) made banner headlines and caused the bank's president to resign. Democrats had won the majority in the Senate, and the new President, Franklin D. Roosevelt
Franklin D. Roosevelt
Franklin Delano Roosevelt , also known by his initials, FDR, was the 32nd President of the United States and a central figure in world events during the mid-20th century, leading the United States during a time of worldwide economic crisis and world war...
, urged the new Democratic chairman of the Banking Committee, Senator Duncan U. Fletcher
Duncan U. Fletcher
Duncan Upshaw Fletcher was an American lawyer and politician of the Democratic Party. Senator Fletcher was the longest serving U.S. Senator in Florida's history.-Early life and career:...
, to let Pecora continue the probe. So actively did Pecora pursue the investigation that his name became publicly identified with it, rather than the committee's chairman.
Following the 1929 Wall Street Crash, the U.S. economy had gone into a depression, and a large number of banks failed. The Pecora Investigation sought to uncover the causes of the financial collapse. As chief counsel, Ferdinand Pecora personally examined many high-profile witnesses, who included some of the nation's most influential bankers and stockbrokers. Among these witnesses were Richard Whitney
Richard Whitney
Richard Whitney may refer to:* Richard Whitney , American financier, president of the New York Stock Exchange, convicted embezzler* Richard Whitney , American portrait and landscape artist...
, president of the New York Stock Exchange
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
, investment bankers Otto H. Kahn
Otto Hermann Kahn
Otto Hermann Kahn was an investment banker, collector, philanthropist, and patron of the arts.-Life and career:He was born on February 21, 1867, and raised in the city of Mannheim, Germany, to Jewish parents...
, Charles E. Mitchell
Charles E. Mitchell
Charles Edwin Mitchell was an American banker whose incautious securities policies facilitated the speculation which led to the Crash of 1929...
, Thomas W. Lamont
Thomas W. Lamont
Thomas William Lamont, Jr. was an American banker.- Biography :Lamont was born in Claverack, New York. He graduated from Phillips Exeter Academy in 1888 and earned his degree from Harvard University in 1892. He became a generous benefactor of the school once he had amassed a fortune, notably...
, and Albert H. Wiggin
Albert H. Wiggin
thumb|Wiggin, circa 1913Albert Henry Wiggin was an American banker.Born in the town of Medfield, Massachusetts, Albert Wiggin was the son of a Unitarian minister and a cousin of Arthur Francis Holme Wiggin CMG. At age seventeen, he went to work for a Boston bank and in 1892 he married Jessie...
, plus celebrated commodity
Commodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....
market speculators such as Arthur W. Cutten
Arthur W. Cutten
Arthur William Cutten was an Canadian-born businessman who gained great wealth and prominence as a commodity trader in the United States. He was called to appear before the Banking and Currency Committee in regard to the causes of the Wall Street Crash of 1929...
. Given wide media coverage, the testimony of the powerful banker J.P. Morgan, Jr. caused a public outcry after he admitted under examination that he and many of his partners had not paid any income taxes in 1931 and 1932.
As reiterated by U.S. Securities and Exchange Commission (SEC) Chairman Arthur Levitt
Arthur Levitt
Arthur Levitt, Jr. was the twenty-fifth and longest-serving Chairman of the United States Securities and Exchange Commission from 1993 to 2001. Widely hailed as a champion of the individual investor, he has been criticized for not pushing for tougher accounting rules. Since May 2001 he has been...
during his 1995 testimony before the United States House of Representatives
United States House of Representatives
The United States House of Representatives is one of the two Houses of the United States Congress, the bicameral legislature which also includes the Senate.The composition and powers of the House are established in Article One of the Constitution...
, the Pecora Investigation uncovered a wide range of abusive practices on the part of banks and bank affiliates. These included a variety of conflicts of interest
Conflict of interest
A conflict of interest occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other....
, such as the underwriting
Underwriting
Underwriting refers to the process that a large financial service provider uses to assess the eligibility of a customer to receive their products . The name derives from the Lloyd's of London insurance market...
of unsound securities in order to pay off bad bank loans, as well as "pool operations" to support the price of bank stocks. The hearings galvanized broad public support for new banking and securities laws. As a result of the Pecora Commission's findings, the United States Congress passed the Glass–Steagall Banking Act of 1933 to separate commercial and investment banking, the Securities Act of 1933
Securities Act of 1933
Congress enacted the Securities Act of 1933 , in the aftermath of the stock market crash of 1929 and during the ensuing Great Depression...
to set penalties for filing false information about stock offerings, and the Securities Exchange Act of 1934
Securities Exchange Act of 1934
The Securities Exchange Act of 1934 , , codified at et seq., is a law governing the secondary trading of securities in the United States of America. It was a sweeping piece of legislation...
, which formed the SEC, to regulate the stock exchanges. Paul Krugman
Paul Krugman
Paul Robin Krugman is an American economist, professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University, Centenary Professor at the London School of Economics, and an op-ed columnist for The New York Times...
believes that thanks to the legacy of the Pecora Commission's hearings and subsequent regulatory legislation, the American economy had a sound financial system for roughly half a century.
The Banking Committee's hearings ended on May 4, 1934, after which Pecora was appointed as one of the first commissioners of the SEC.
In 1939 Ferdinand Pecora published a memoir that recounted details of the investigations, Wall Street Under Oath. Pecora wrote: "Bitterly hostile was Wall Street to the enactment of the regulatory legislation." As to disclosure rules, he stated that "Had there been full disclosure of what was being done in furtherance of these schemes, they could not long have survived the fierce light of publicity and criticism. Legal chicanery and pitch darkness were the banker's stoutest allies."
See also
- Ferdinand PecoraFerdinand PecoraFerdinand Pecora was an American lawyer and judge who became famous in the 1930s as Chief Counsel to the United States Senate Committee on Banking and Currency during its investigation of Wall Street banking and stock brokerage practices.-Early career:Ferdinand Pecora was born in Nicosia, Sicily,...
- Pujo CommitteePujo CommitteeThe Pujo Committee was a United States congressional subcommittee which was formed between May 1912 and January 1913 to investigate the so-called "money trust", a community of Wall Street bankers and financiers that exerted powerful control over the nation's finances. After a resolution introduced...
- United States v. Morgan et al.United States v. Morgan et al.U.S. v. Morgan et al., more commonly referred to as the Investment Bankers Case was a multi-year antitrust case against brought by the United States Justice Department against seventeen of the most prominent Wall Street investment banking firms, known as the Wall Street Seventeen.The Justice...
(the Investment Bankers Case)
Further reading
- "The Separation of Commercial and Investment Banking: The Glass–Steagall Act Revisited and Reconsidered" - a retrospective of the Pecora Commission's conclusions by George J. Benston, Oxford University PressOxford University PressOxford University Press is the largest university press in the world. It is a department of the University of Oxford and is governed by a group of 15 academics appointed by the Vice-Chancellor known as the Delegates of the Press. They are headed by the Secretary to the Delegates, who serves as...
, 1990. }} - Michael E. Parrish, Securities Regulation and the New Deal (1970);
- Michael Perino. The Hellhound of Wall Street: How Ferdinand Pecora's Investigation of the Great Crash Forever Changed American Finance. Penguin Press HC (2010)
- Donald A. Ritchie, "The Pecora Wall Street Expose," in Arthur M. Schlesinger, Jr., and Roger Bruns, eds., Congress Investigates, 1792-1974: A Documented History (1975)
External links
- Guide to the Records of the U.S. Senate at the National Archives
- Introduction to the Banking Committee's Report
- Damnation of Mitchell TimeTime (magazine)Time is an American news magazine. A European edition is published from London. Time Europe covers the Middle East, Africa and, since 2003, Latin America. An Asian edition is based in Hong Kong...
magazine 1929. - Pecora Commission Report 1934
- Pecora Investigation Hearings- Also known as Stock Exchange Practices. Hearings before the Committee on Banking and Currency Pursuant to S.Res. 84 and S.Res. 56 and S.Res. 97. The full-text of these hearings are posted on the FRASER website of the Federal Reserve Bank of St. Louis in searchable pdf format.